The recent commencement of media reforms is predicted to trigger a wave of M&A activity in the sector. ALB asks the specialists for their views on the impact of the reforms
 
On 4 April, the government's reforms of media laws came into force, removing hurdles that deal with cross-media ownership and enabling foreign investors to take majority stakes in Australian media companies. It is the largest overhaul of media laws in two decades.

Predictions have been made that the commencement of the reforms would trigger an avalanche of merger activity in the media industry. Communications minister Helen Coonan played down the prospect of wide-scale consolidation and says that the new laws ensure enough diversity in the media landscape. So who is right?
 
The arrival
Philip Maxwell, M&A partner of Blake Dawson Waldron, says we are already past the stage of crystal-ball gazing: "The wave of activity has already arrived," he says. "That wave arrived when legislation was passed through both houses of parliament, but before it was proclaimed."

He says the purchase of a 50%-stake by private equity company CVC Asia Pacific in Publishing and Broadcasting Limited (PBL), valued at A$4.5bn, was a direct consequence of the new media laws. "That deal was designed so that they could sign up their transaction, although the law hadn't been proclaimed," he says.

His colleague Paul Mallam, media partner with BDW, explains the transaction had components in it that needed the reforms to go ahead. "Although it was presented in the press that both transactions were concluded in December last year, this is not quite true in the respect that both of those transactions involved foreign private equity taking a 50% stake. The foreign ownership laws continued to be in force until 4 April; therefore, that stake was taken up through the convertible note mechanism." The conversion of these notes had to wait until the reforms came into force to be concluded.

However, not all transactions that were launched after the announcement of the reforms needed the changes; some transactions could just as well have been completed under the old media laws. It seems that the psychological effect of the announcement was almost as important as the actual changes themselves.

"It caused all media companies to think how it was going to impact them and where they would want to be in a potentially consolidated sector," says Freehills partner Rebecca Maslen-Stannage. "It triggered some strategic thinking about what the opportunities are and how you want to be positioned for them."

The cascade
The partners at BDW believe that only a few large deals remain on the table, such as the sale of Channel Ten and potentially the takeover of Fairfax, but they expect the market to now turn its attention to medium-sized deals. "What we think will happen is that you will see a number of cascading deals," says Mallam. "The A$3bn plus deals have happened and from the very large deals you see it cascade down to what might be regarded to the medium-sized deals of A$50m-300m."

Maxwell agrees: "The wave came up the beach, it certainly has broken on shore and there might be a couple of smaller waves after that." The partners think this pattern will continue, certainly in the next year.

Ian Robertson, head of media & corporate practice of Holding Redlich and managing partner of the Sydney office, says the reason why we do not see more activity at the moment is because the prices being asked are considered quite high.

"The last time we saw considerable changes was in the 90s, when national television stations were created. We saw then what happened when people pay too much: Seven Network, Channel Ten and Fairfax were all in receivership. The current players remember that lesson well."